Professor Jeff Richardson Director, Health Economics Unit CHPE, Monash University

1
Inaugural Health Forum Your Medicare - 30
Years On Still good for you? The Whitlam
Institute, within the University of Western
Sydney Tuesday 15 July 2003
Social Values, Efficiency and Medicare
Professor Jeff RichardsonDirector, Health
Economics UnitCHPE, Monash University
2
Social Values, Efficiency and Medicare

• Social Values, Efficiency and System Reform
• How Healthy is Medicare
• (a) Large Issues
• (b) Small Issues and Non-Problems
• Options for Reform
• Conclusion

3
Objectives

• What do we want?

4
Where Do I Go From Here?
Would you tell me, please, which way I should go
from here? Alice asked the Cheshire Cat.That
depends a good deal on where you want to get to,
said the Cat. I dont much care where said
Alice. Then it doesnt matter which way you go,
said the Cat. so long as I get somewhere,
Alice added as an explanation. Oh, youre sure
to do that, said the Cat, if you only walk long
enough.
5
Key Question for Australia

• Did Alice listen to the Cheshire Cat or the Mad
  Hatter?

6
Social Values

• Liberalism/Libertarianism
• maximise choice safety net
• Communitarianism/Solidarity
• Canadian Medicare is far more than just an
  administrative mechanism for paying medical
  bills, it is widely regarded as an important
  symbol of community, a concrete representation of
  mutual support and concern it expresses a
  fundamental equality of Canadian citizens in the
  face of death and disease As the Premier of
  Ottawa pointed out there is no social program
  that we have that more defines Canadianism.
  Evans, R and Law, M. The Canadian Healthcare
  System. Where are we and how did we get here,
  in Dunlop and Martens, An International
  Assessment of Healthcare Financing, Economic
  Development Institute of the World Bank, Seminar
  Series 1995.
• Communitarianism different dimension ?
  equity equity ? funding

7
Solidarity/language/concepts

• and the Dialogue of the Deaf
• Theme An emaciated vocabulary inhibits the
  concepts needed for debate

8
Orwell 1984, The principles of Newspeak
(How to inhibit subversive thoughts) The purpose
of Newspeak was not only to provide a medium of
expression for the world-view and mental habits
proper to the devotees but to make all other
modes of thought impossible. It was intended that
when Newspeak had been adopted once and for all
a heretical thought should be literally
unthinkable, at least so far as thought is
dependent on words This was done chiefly by
eliminating undesirable words Countless other
words such as honour, justice, morality,
internationalism, democracy, science and religion
had simply ceased to exist. A few blanket words
covered them, and in covering them, abolished
them. What was required in a Party member was an
outlook similar to that of the ancient Hebrew who
knew, without knowing much else, that all nations
other than his own worshipped false gods. He
did not need to know that these gods were called
Baal, Osiris, Moloch, Ashtaroth and the like
probably the less he knew about them the better
for his orthodoxy. He knew Jehovah and the
commandments of Jehovah he knew, therefore, that
all gods with other names or other attributes
were false gods. Orwell, G 1949, The
Principles of Newspeak in Nineteen Eighty Four,
pp317-319.
9
Social Values and Efficiency

• Achieving Wrong Objectives
• is not Efficient

10
Social Values and Efficiency

• Private sector diversity low cost ? efficient
  if objectives is solidarity efficiency may
  involve equal access and health outcome
• Universal uniformity and low cost ? efficient if
  objective is choice (of a particular
  type)
• Efficiency Achieving objectives

11
Economics, Options and Social Values
Objectives/Social Option which
maximisesValues likelihood of success Equalise
access, Public outcome Maximise
choice Pure private scheme Choice diversity
Mixed public-private safety net
12
How Efficient is Medicare?

• Outcomes
• Small issues
• Larger problems

13
Outcomes

• DALES rank 2
• Cost exactly where expected with respect to
  GDP/capita
• Does this imply we are performing well?

14
10,000 lemmings cant be wrong
15
Short Run Problem 1

• Private Health Insurance

16
PHI The Myth

• PHI ?? use of Private hospitals ? ? pressure
  on public hospital beds ? Public Queues ?
• Policy objective Reverse process ? pressure
  off public hospitals
• Plausible, logical, wrong

17
Private Hospital Services

• Separations of Total Bed Days
• 1985/86 25.9 21.9
• 1989/90 26.7 22.0
• 1995/96 30.5 26.3
• 1999/00 34.3 28.1
• Increase 32.4 28.3
• Source Butler 1999, Bloom 2002

18
PHI Policies

• July 1997 Private Health Insurance
  Incentives Scheme (PHIIS) Tax subsidy low
  income groups Tax penalties high income
  groups without PHI single
  gt50,000 family gt 100,000
• Dec 1998 30 rebate PHIIS replaced flat
  30 of PHI
• Sept 1999 (effective from July 2000) Lifetime
  Community Rating age 30 no PHI ? life time
  premium ?

19
Percent population covered by a hospital
insurance table, Australia June 1984 to June 2001
Source Butler 2001, Policy change and private
health insurance in Mooney Plant (eds) Dare to
Dream The Future of Australian Health Care, p
60.
20
The Echidna, the Platypus and PHI

• Australias entries into the World Strange but
  True contest

21
The Echidna, the Platypus and PHI

• Australias entries into the World Strange but
  True contest
• (i) If income gt 50,000 single, 100,000
  family price of PHI lt 0Analogy to support
  auto industry surcharge on wealthy families
  failing to buy Australian car

22
The Echidna, the Platypus and PHI

• Australias entries into the World Strange but
  True contest
• (i) If income gt 50,000 single, 100,000
  family price of PHI lt 0
• (ii) If use PHI, out of pocket cost ?

23
The Echidna, the Platypus and PHI

• Australias entries into the World Strange but
  True contest
• (i) If income gt 50,000 single, 100,000
  family price of PHI lt 0
• (ii) If use PHI, out of pocket cost ?
• (iii) To sell insurance, increase the risk

24
Sensible Options

• Private Health Insurance
• Enlarge scope to comprehensive health cover
• Finance/management st regulation, (ie Managed
  Competition) ? efficiency
  (hopefully)
• Allow erosion PHI ? safety valve ?
  inefficiency unimportant

25
Short Run Problem 2

• Pharmaceuticals

26
Pharmaceuticals and Other Medical Non-Durables
of total expenditure on health

1960

1998


1960

1998

Australia

22.3

11.4

Japan


16.8

Belgium

24.3

16.1

Korea


13.8

Canada

12.9

15.0

Luxembourg


12.3

Czech Republic


25.5

Netherlands


10.8

Denmark


9.2

New Zealand


14.4

Finland

17.1

14.6

Norway


9.1

France

22.1

22.0

Portugal


25.8

Germany


12.7

Spain


20.5

Greece

26.8

14.7

Sweden


12.8

Hungary


26.6

Switzerland


7.6

Iceland

16.7

15.5

United Kingdom


16.3

Ireland


9.9

United States

16.6

10.1

Italy

19.8

21.9





Australias rank 7 out of 25 Source OECD,
2002
27
Pharmaceuticals Long run solution

• Must be part of a coherent health scheme
• Cost of pharmaceuticals alone is irrelevant if
  (Pharm) ? (hosp) ? then ? cost of
  pharmaceuticals desirable

28
Long Run Non-Problem 1

• Cost
• Nation cant afford to pay False
• Expenditure ? choice
• If U (health) gt U (elsewhere) then ? health
• Caveat
• Expenditure must be efficient

29
Long Run Non-Problem 2

• Government cant afford to pay False
  taxes/levy can ? True iff taxes fixed
• Collective or individual financing ? Efficiency
  issue Issue of choice

30
Long Run Non-Problem 3
Projected Health Expenditure as a Percentage of
GDPbased on GDP growth rates of 2.1, 3.1, 3.6
31
How Healthy is Medicare

• Large Problems

32
Problem 1

• Quality of Care (Efficiency)

33
Adverse Events

• Quality in Australian Hospitals Study
• AE 16.6 (Wilson et al 1995)
• Revision ? 10.6 (Thomas et al 2000)

34
Problem 2

• Cost Effectiveness

35
Cost-effectiveness of selected health programs
Australia 1992 to 1998
Service/intervention Cost per life year drugs
submitted for listing on the 7 drugs 5 -
10,000PBS approved for funding at 5 drugs
10 - 20,000nominated price 1991 - 96 6 drugs
20 - 40,000 4 drugs 40 -
70,000 primary prevention of NIDDM cost
savingbehavioural programs 2,400/LY primary
prevention of NIDDM 4,600 - 12,300surgery for
serious obesity comprehensive diabetes care lt
1,000/life year saved
Segal L The Role of Economics and Health
Economics in Environment Research, Workshop on
Environmental Health, Department Health and Aged
Care, Melbourne April, 2000 Derived
from Segal L 2000, Allocative efficiency in
health. Development of a model for priority
setting and application to NIDDM,
Doctoral Thesis, Monash University. George B,
Harris A, Mitchell A 1999,Cost-effectiveness
Analysis and the consistency of decision making
evidence from pharmaceutical reimbursement in
Australia, 1991 to 1996, CHPE Working Paper 89
HEU, Monash University. Notes maximum
68,913 in 1995-6 LY life year gain,
QALY quality adjusted life year gain, 1 QALY
is equivalent to one life year in full health.
36
Problem 3

• Variations in Treatments

37
Standardised Rate Ratios for Various Operations
in the Statistical Local Areas in Victoria,
Compared to the Rate Ratios for All Victoria
Variance Ex(Variance)
Procedure
Coronary Angiography 13.4 Cor Revasc
Procedure 5.4Cataract Extraction 15.4Tonsils
Adenoids 7.5Myringotomy 11.7Carpal Tunnel
Release 8.4Vertabral discetomy 2.1Decomp
laminectomy 1.9Total Hip Replacement 3.8Hysterec
tomy 6.4Prostatectomy 3.9Colonoscopy 45.3Cholec
ystectomy 5.3Explorat Laparotomy 1.7Appendectomy
5.9
4
0
0
3
5
0
3
0
0
2
5
0
2
0
0
1
5
0
1
0
0
5
0
0
38
Ratio of likelihood of public patients to private
patients in private and public hospitals, 1995/97
Private Hospital
Patients Private Patients in Public
Hospitals Public
Patients to Public Patients
to Angiography Revascularisation Angiograph
y Revascularisation Within 14 days Men 2.20 3.43
1.77 1.53 Women 2.27 3.86 1.57 1.81Within 3
months Men 2.24 3.43 1.53 1.23 Women 2.28 3.34
1.49 1.32 Within 12 months Men 2.16 2.89 1.42
0.97 Women 2.22 2.84 1.48 1.10
Source Victorian
Inpatient Minimum Dataset
39
Problem 4

• Silo based system

40
Overarching Problems with Funding

• Dollars follow providers, not patients ?
  fragmentation ? geographic/disease based
• Allocative inefficiency
• Inequity
• Magnitude/consequences of the problem
• Unknown / ignored

41
Case Studies What we would expect to see in a
Health System
42
Vignette 1
Ethix, a Seattle based Managed Care organisation
was asked to establish a health plan for a nearby
country town. The scheme included, inter alia,
detailed utilisation review. Shortly after
commencement this detected an unexpectedly high
level of spinal injury in youths. Investigation
established that the reason for this was a tree
stump which had been left in the middle of a
popular toboggan run. Young people were crashing
into this and injuring their backs. The health
plan paid for a bulldozer to remove the tree
stump. (Summary from a public address,
Richardson et al 1999)
43
Key Element

• Flexibility of funds
• single payer
• No cost shifting
• Information systems
• Health Service Review/Research

44
Vignette 2
A woman with dizziness is concerned about her
health. She rings the state call centre which
advises her to visit her local health team. She
is able to see the GP quickly who asks her a
series of questions from the relevant research
based protocol and undertakes a clinical
examination. The GP emails the results to a
local specialist who orders some further
investigations consistent with the state research
based care path Advice of (an) impending
admission is automatically conveyed
electronically to the GP and the social worker in
the referring health team. The social worker
contacts the hospital to discuss discharge
planning The specialist suggest a number of
sources for information about the patients
condition. The patient contacts the call centre
for further information The case is randomly
selected by the hospital audit committee for
quality review. The committee suggests some
slight changes to the state-wide protocol
committee.
(Duckett 2000 p241)
45
Key Elements

• Integrated provider system
• EBM
• Review/Adaptation
• Information System
• No financial barrier

46
QA Procedures

• After Quality of Australian Hospital Study
• Expect Permanent, ongoing random check of
  hospitals
• Analogy 1 Checking hygiene in restaurants
• Analogy 2 Airline/safety
• Observe ???

47
Hospital Records

• Expect All hospitals have LAN and mandatory
  recording of treatment
• Observe Erratic coverage

48
Out of Hospital Data

• ExpectData Compulsory electronic linking
  (would a travel agent survive without record
  linkage?)
• Observe Very slow uptake of EDP

49
Type/Mix of Services

• Expect Evidence Based Medicine
• Observe Clinical freedom (license)
• Expected Response Maximum priority
  to promote EBM
• Observe Unhurried projects

50
Organisation

• Expect Kaiser HMO-type clinics
• Observe 19th Century corner store organisati
  on

51
Response to Problems (Generally)

• Queuing
• Expect taskforce pinpointing cause of problem
• Actual political accusations/assertions
• Small Area Variation
• Expect Follow-up - how general - impact on
  health
• Actual Silence
• Heart Attack Study
• Expect Follow-up - how general - impact on
  health
• Actual Silence

52
Use of Data

• Expect
• Ongoing analysis to identify anomalies/problems
  (eg SAV Erratic severe patterns)
• Record linkage to track success/unsuccessful
• National Institute for Data Analysis
• Observe
• Relative inaccessibility

53
Health Services Research

• Expect large scale funding
• US NIH US 1.5 billion Aus 2.5 billion
• Australia equivalent 100 million
• Observe
• Erratic small scale, unfocused grants

54
Quality of Information/Debate

• Expect
• Readily available, information on system
  performance
• Observe
• Ongoing repetition of same wrong assertions with
  respect to
• Private Health Insurance (20 years)
• Co-Payments (35 years)

55
Options for Reform

• System
• Individual elements

56
System Change

• Principles
• Single fundholder (government or pte)
• Incentives for reform

57
Scotton/Enthoven Managed Competition
Treasury Tax
Private (Funds )
HIC
Public(Area Health)
Private (Fund Holders)
Various Sub-contracts
Public Hospital
Private Hospital
Public Other
Private Other
58
Managed Competition

• Uncertainties
• Evidence limited
• Quality neither ? nor ? (USA)
• Cost US prices ? (low hanging cherries)
  real effects limited
• Threats (i) Administrative costs ?
  contracts (ii) Competition ? marketing ?
  cost attractiveness (iii) Multi tier system
• Violation of social objectives ??

59
Regional Budget Holders (RBH)

• (A win-win low risk strategy)
• Weakness of Medicare Fed/State splitsolution ?
  Regional Base
• Scotton MC requires default public scheme ?
  Regional Base

60
Advantage of Regional Budget Holder

• First stage to Managed Competition
• Rationalises funding
• Progressive experimentation

61
Impact of Regional Budget Holder

• Public indistinguishable from status quo
• PHI unchanged (initially)
• Government both compromise

62
Stages of the Reform Process
Box 1

Stages of the Reform Process


t


Methodology and Cost

(a)

current regional spending

0


(b)

expected spending



(c)

public saving due to PHI


t


Pooling

(a)

regional authorities (n 15) receive a single
budget

1

(b)

initially 100 percent reimbursement of
overspending



(c)

reimbursement of providers as occurs presently



(d)

HIC a possible agent



(e)

public ho
spital reimbursement by DRG



t

Early Transition 1

(a)

regional budgets adjusted 5 percent per annum
towards expected value
2


determined by a risk population based framework

(b)

regions permitted to alter specified
relationships (eg limit
ed preferred
provider contracts but preservation of default
payments employment of
allied health personnel introduction of
integrated information, QA system)


t

Late Transition 1

(a)

regional budgets set equal to the expected
budget

3


(b)

flexib
ility and discretion increased eg no or low
default payment for non
-


contract providers elimination of high risk (low
quality) hospital departments
construction of (Kaiser style) vertically
integrated clinics. Possible integration
with aged services

(c)

a
ssessment of final transition


t

Transition 2

(a)

private sector carve outs transfer of full
budgets per person to registered
4


accredited groups, regulated as in the Scotton
proposal

(b)

ongoing review of performance (see Scotton)



63
Conclude

• Main Themes
• Reforms should
• Address identified problems, ie unmet
  achievable objectives
• Be evidence based
• Priority
• Risk likelihood of perverse outcome

PotentialBenefit
risk


64
Implications

• Risk Benefits
• (i) Privatisation low small/zero/negative
• (ii) Simple Competition v. high negative
• (iii) Managed Competition high high
• (iv) Regional budget holder v low modest

65
Individual Elements

• Respond to problems
• (Prerequisite motivation to reform)

66
Importance Ordering of Issues

• Actual
• Objectives
• Delivery System
• (i) Quality, routine monitoring, feedback
• (ii) EBM
• (iii) Full use of databases
• (iv) Efficiency in all elements cost effective
• Funding
• Co-Payments
• PHI
• Government/Pte Share
• Total Cost of Health Care
• Observed Order (4) (3) (2) (1)

chief concern - effect on accessnot cost
sharing
67
Conclusions

• Medicare has served community well
• universal
• efficient to administer
• consistent with Australian values
• Complacency
• the UK-NHS Disease
• Medicare-defined as funding system OK
• Medicare-defined as whole system-needs important
  change